Debt Relief- Choosing Between Credit Counseling and Debt Consolidation
Being in debt is undoubtedly an extremely stressful situation, which no one wants to go through. However, during certain situations, it becomes extremely important to take a loan from the financial institutions like banks or the credit unions. It has been observed that due to a number of personal as well as financial issues, a number of people are not able to clear off all their debts easily. This creates a bad situation, especially when that particular person owes more in comparison to what he is earning each month. When you are paying for all the other bills, it is your duty to ensure whether the debts are being paid correctly and on time. Even though you might think that you will never be able to get out of your withstanding debt, the truth is that there are a few options, which will allow you to get out of the financial crisis that you are in. Going for the different debt relief programs that are suitable with the requirements that you have, is one of the best options that you have for clearing your debts. Before doing anything else, you need to have a proper knowledge about different debt relief options that are there.
An important option that you can consider is credit counseling, which is known as consumer credit counseling. Numerous credit counseling agencies are available both locally as well as online. You need to know that the best credit counseling agencies are the ones that do not charge anything. When you decide to contact a particular credit counseling agency, chances are that the counselor will spend almost an hour to discuss the financial problems that you are in. The agencies that are the best will not charge anything for this particular service.
Depending on the seriousness of the financial problems that you have, your credit counselor can recommend a structured debt management plan or a DMP. In this plan, the counselor is responsible for determining the amount that you are capable of paying, and then he will negotiate the creditors, to whom you owe money, on behalf of you. In some of the cases, the counselor can also attempt to make negotiations for reducing the rates of interest. If all the creditors or most of them agree to the debt management plan, you can stop paying them money. Instead, you have to send a monthly payment to the counseling agency, which will then distribute the payment to the creditors on basis of the agreed debt management plan.
A disadvantage that you should know about a debt management plan is that it takes almost 5 years for completion. Chances are that you will be giving up all the credit cards and you also have to control the urge to take a new credit card unless the plan has been completed. These are considered to be the biggest and most significant reasons as to why half of the debtors cannot complete the debt management plan successfully, because they are unable to control the urge of taking up a new credit card.
However, the benefit that is associated with this debt relief option is also something that you should know about. Your monthly payment is going to become lower in comparison to the total payments that you are constantly making. Also, your creditors are not going to harass you at any cost and you will not get unwanted calls from your credit company. You can click here to know more about debt relief.
Debt consolidation programs
Consolidating all the withstanding debts into a single manageable account is what debt consolidation is all about. The main objective of a debt consolidation program is eliminating the debts that have a high rate of interest and ensure that the payments at the end of every month are reduced significantly, thereby allowing you to think about only a single payment. However, this does not affect the total balance. Debt consolidation is only responsible for shifting all the debts within a single account.
You have the option of consolidating the debts by taking loans from financial institutions like banks, credit unions, or certain other sources. If you are the owner of your home and have equity, chances are that you will also qualify for the home equity loans or the homeowner equity lines of credit, and you can use these funds for paying all the other debts. These are referred to as the security loans because it is important that you keep them secured by making use of the equity within your home, as collateral. Home equity loans are also referred to as the second mortgages. No matter what you choose, you are going to lower the monthly payment in comparison to the total amount that you were paying at the end of each month. The interest rates on the debt consolidation loans tend to vary between 5% and 36%, as stated by www.incharge.org.
You can also get a personal or unsecured loan if you are not the owner of your home. However, the payment is not going to be as low as the payment that you would have got with the home equity loans. Debt consolidation is undoubtedly a great get relief option that you can consider as you will be able to avoid the debt collection agencies and the creditors, who keep on harassing you constantly. It is your duty that you do not take up a new loan or chances are that you will again go back to the same position from where you have started, and you will again struggle to make the payments.
While there are other debt relief options as well, credit counseling and debt consolidation programs are appropriate for a number of debtors. Before choosing anyone, you should have a sound knowledge about the advantages and disadvantages that are associated with them as well as the time that both of them are going to take for clearing off your debts. However, you need to understand that even you have to be extremely disciplined so that you do not go back to the same financial problems from where you have just been released.